Question

What is the impact of tax-related complications arising on the purchase date?

Answer 1

Occurs when seller is not taxed; buyer gets book value for future depreciation

Adjustment from market to book accompanied by

DTL = tax % × market adjustment

DTL is amortized over same period as asset adjustment; increases tax liability in future years

Tax loss carryover is asset recorded in purchase

–Limitations on its use in year of purchase and later years

All amortizations and tax adjustments are carried to Sub’s Income Distribution Schedule